Dive Brief:
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Kohl’s has rejected a $53-per-share takeover bid — down from a previous offer of $60 — from Vitamin Shoppe owner Franchise Group, the department store said in a Friday filing with the Securities and Exchange Commission. In its own update Friday, Franchise Group didn’t elaborate on why its negotiations were terminated.
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But Kohl’s said the revised proposal reflected difficult financial and retail conditions and had been submitted “without definitive financing arrangements.” Franchise Group cut its bid after the Federal Reserve on June 15 raised its benchmark interest rates by three-quarters of a percentage point, the biggest hike in nearly 30 years, per Kohl’s filing.
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The department store, citing macroeconomic issues including inflation, also lowered its Q2 sales estimates from a low-single digit decline to a high-single digit decline, according to a Friday press release.
Dive Insight:
Kohl’s Board Chair Peter Boneparth described an exhaustive strategic review process, entailing discussions with more than 25 interested parties, that was ultimately stymied by the macroeconomic environment and market volatility.
“Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement,” he said in a statement.
But Kohl’s “moved slowly” as the environment deteriorated and missed multiple opportunities for bids closer to $60 per share, according to a Friday client note from Credit Suisse analyst Michael Binetti. Credit Suisse estimates that the retailer’s June comps were down by double digits, and warned that Kohl’s failure to provide a full-year update indicates more bad news ahead.
Still, Kohl’s rejection of a deal is little surprise, especially given its disinclination to sell from the get-go, according to GlobalData Managing Director Neil Saunders.
“Kohl’s management never really wanted to sell the business, favoring instead to follow their own strategic plans,” he said. “They entertained Franchise Group as it was the least worst option and would have kept the company intact and some of the current management in place, but they will not likely mourn the termination of talks.”
It’s also true that conditions don’t favor deal-making at the moment, according to Saunders, who noted that Walgreens ended its effort to sell off its U.K. Boots business just the other day. There seemed to be reluctance on the part of both Franchise Group and Kohl’s, he said.
“The near-term outlook for Kohl’s was always challenging and became even more so over the course of the talks,” Saunders said. “This would have impacted [Franchise Group’s] return on investment and made their plans to sell off real estate to finance the deal much more difficult.”
That doesn’t mean any letup in the pressure for Kohl’s to shake up its operations or even sell itself. But the tighter market conditions of the moment will likely keep a deal out of reach, and that gives Kohl’s time to rebuild, Saunders also said.
